Central Perk

luni, 30 martie 2015

While individuals might do extraordinary work while pumped with adrenalin (lifting a car, running through a burning building), panic can decrease the efficacy of a system by 30% or more--often completely destroying it.

Compare the typical throughput of a highway during rush hour (when it's filled with seasoned commuters) to a similar road when people are fleeing a natural disaster.... in the first case, the cars naturally keep a safe distance, drivers are sufficiently alert, everyone gets home. In the other, there's a complete standstill.

Or consider how the TSA functions in an environment of stress (like the Orlando airport). A combination of leisure travelers, poor management and bad architecture means that (at least every time I've been there), there's a lot of yelling, invaded space and wasted time. Not to mention frayed nerves among Disney-overdosed parents in need of anything but more hassle.

Here are some thoughts for someone who might want to write a book about the panic tax (or someone who runs a system that shouldn't be degraded):

1. The cost of ameliorating panic in your system is always less than the cost of the the lost productivity when panic hits. In other words, all the other steps are worth it.

2. Slack is the enemy of panic. When in doubt, add resources, or even simpler, remove requirements. That's what the gated entry points on crowded freeways do... the entire road goes faster when fewer cars are on it, meaning that gating cars at the entrance is actually far faster than letting them on over the course of the commute.

3. Media voices, politicians and others that create panic for a living need to own responsibility for the way their actions dramatically magnify the cost we all pay.

4. The answer to, "should we panic," is always no. Always. Panic is expensive, panic compounds and panic doesn't solve the problem.

5. Install panic dampers at every opportunity. TSA officers should be trained to talk more softly and slowly when their systems approach capacity. Sound deadening devices should be tuned to be most effective when volume increases. The police should be trained to seek compliance second, after they are able to diffuse panic.

6. They call them panic attacks for a reason. After-action review, an attack-analysis session, ought to be held whenever a system freezes under panic. Find the instigator, the first step, not the last one, and invest in what it takes to ameliorate it next time.

Mostly: Panic averted is far cheaper than panic survived.

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duminică, 29 martie 2015

Mish's Global Economic Trend Analysis

Sarkozy, Le Pen Triumph Over Socialists in Second Round of Local Elections

Posted: 29 Mar 2015 06:57 PM PDT

The Socialists were routed in the second round of French elections this weekend. The centre-right UMP party led by Nicholas Sarkozy was the clear winner but Marone Le Pen's National Front had it best performance ever at the local level although it did not win any départements.

The Financial Times reports Nicolas Sarkozy the winner as French local polls deal blow to Socialists.

The UMP, led by the former president Nicolas Sarkozy and in an election coalition with the centrist UDI party, won between 66 and 70 départements compared with 41 previously, according to projections from polling companies.

By contrast, the Socialist party looked to have held on to between only 27 and 31 — barely half the 61 départements it controlled before.

The far-right National Front (FN), meanwhile, appeared to have made considerable ground in Sunday's second-round vote — though it was unclear if it had done enough to win full control of any départements.

Even so, the anti-immigration, anti-euro party led by Marine Le Pen is likely to have done much to boost its national presence as it looks ahead to the 2017 presidential election. The FN has made important gains in recent years, wooing voters from both left and right, disillusioned by the lack of economic growth and high unemployment.

Following on the back of last year's success in European elections over France's two mainstream parties, Ms Le Pen called Sunday's result "the foundation of tomorrow's big victories".

Sarkozy and Le Pen Triumph in French Local Elections

The Guardian reports Hollande Left Bruised as Sarkozy and Le Pen Triumph in French Local Elections

Front National's strong gains mark turning point for far right in expanding grassroots presence, while win for Sarkozy prefigures likely presidential run.

The French right has made large gains in the country's local elections, handing President François Hollande's ruling Socialist party its third electoral drubbing in a year and raising fears for the future of the left.

Nicolas Sarkozy's rightwing UMP party, in coalition with centrist allies, took the largest share of seats, wresting control of many traditional leftwing bastions from the Socialists.

But key to the changing political landscape in France was the strong showing for the far-right Front National, which marked a major turning-point as the party established a new grassroots presence across the country.

After winning only two local council seats at the last election in 2011, Marine Le Pen's anti-immigration and anti-Europe party was on track to win as many as 90 councillors, cementing the Front National's transformation from what was once a simple national protest vote to a locally anchored movement that Le Pen hopes to use as a springboard for her presidential bid in 2017.

Although the Front National did not win outright control of any département local council, its percentage score rose sharply from the last local elections.

Le Pen hailed her party's best result in a local election as a "magnificent success".

The Socialist prime minister, Manuel Valls, said: "The very high – too high – score of the far-right represents, more than ever, a challenge to all republicans."

He said the Front National's success marked a "lasting upheaval" of the French political landscape and all political parties had to learn lessons from it.

The local elections, followed by the regional elections in December, have been seen as a barometer for 2017's presidential race. Several polls have shown that Le Pen could make into the second-round presidential runoff vote in 2017, knocking out either the left or right.

Most pollsters agree that Le Pen could never gain enough votes in the final round to win the presidency. But her potential presence in a runoff has worried the mainstream left and right. Socialists are keen to avoid their candidate being knocked out, as happened when Jean-Marie Le Pen knocked out Lionel Jospin in 2002.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Time to Eliminate Pilots in Aircrafts: Post Pilot Era Coming Up

Posted: 29 Mar 2015 01:31 PM PDT

Instead of new rules making sure two people are in the cockpit at all times, how about a rule that says no one at all is allowed in the cockpit? This is precisely how I felt after 911 and even more so after the disappearance of Malaysia Flight 370 on March 8.

The tragedy of Germanwings Flight 9525 in which a mentally ill co-pilot deliberately flew the plane into a mountain killing all 150 on board is icing on the cake.

And it's not just two deliberate crashes either. Please consider The Mystery of Flight 9525: a Locked Door, a Silent Pilot and a Secret History of Illness.

Just under 40 minutes into their journey, the plane's 27-year-old co-pilot, Andreas Lubitz, turned the Airbus A320 into a missile, guiding it into the southern Alps after locking its captain, Patrick Sonderheimer, out of the cockpit.

In the doomed flight's final minutes, Sonderheimer attempted to force his way through the security door that separates the passengers from the pilots. At one stage he reportedly tried to use an axe. Recordings obtained by crash investigators capture him attempting to remonstrate with Lubitz – whose breathing, according to the microphones in the cockpit, remained sure and steady as the plane made its rapid descent. It was only in the final seconds that there was the sound of screams. Experts said death would have been instant.

As the New York Times revealed early on Thursday, French time, the voice recorder confirmed that Lubitz had locked the captain out of the flight deck and set the plane on its descent.

In November 2013, a flight between Mozambique and Angola crashed in Namibia, killing 33 people. Initial investigations suggested the accident was deliberately caused by the captain shortly after his co-pilot had left the flight deck.

In October 1999, an EgyptAir Boeing 767 went into a rapid descent 30 minutes after taking off from New York, killing 217 people. An investigation suggested that the crash was caused deliberately by the relief first officer, although the evidence was not conclusive.

And in December 1997, more than 100 people were killed when a Boeing 737 flying from Indonesia to Singapore crashed; the pilot, who was said to be suffering from "multiple work-related difficulties", was suspected of switching off the flight recorders and intentionally putting the plane into a dive.

In an interview with the bestselling German tabloid Bild, the 26-year-old flight attendant, known only as Maria W, said that they had separated "because it became increasingly clear that he had a problem". She said that he was plagued by nightmares and would wake up and scream "we're going down".

Last year he told her: "One day I'm going to do something that will change the whole system, and everyone will know my name and remember."

A debate now rages about the extent to which companies and regulators can monitor a person's mental health, especially if they perform a job that carries responsibility for the lives of others. The UN world aviation body has stressed that all pilots must have regular mental and physical checkups. But psychological assessments can be fallible. "If someone dissimulates – that is, they don't want other people to notice – it's very, very difficult," Reiner Kemmler, a psychologist who specialises in training pilots, told Deutschlandfunk public radio.

Debate over Mental Illness

The debate over mental illness, locked doors, emergency overrides etc., is the wrong debate.

The debate should quickly turn to whether there should be pilots in the plane at all.

Post Pilot-Era

The Globe and Mail hits the nail on the head with its report Aviation is Fast Approaching the Post-Pilot Era.

Every day, dozens of unmanned jet aircraft as big as private business jets take off from airports scattered around the globe. They fly for thousands of kilometres, staying aloft for as long as 36 hours, often changing course to cope with unexpected developments, before returning to land.

To call them drones grossly understates the sophistication, safety and cost-effectiveness of autonomous and remotely piloted aircraft.

Global Hawks, for instance – long-range, sophisticated surveillance jets, controlled from Beale Air Force Base in California but flying from at least six air bases in Japan, Guam and the Middle East – range around the world. They have been flying for 15 years. They have flown to Australia and back from the United States. They fly daily over Afghanistan and Iraq but also over heavily trafficked airspace where they fly high above commercial airliners. They can be programmed to take off, fly a 32-hour mission and land, all without direct human control. Alternatively, pilots half a world away, linked by multiple, secure and redundant satellite data links can "fly" them remotely. And there are thousands of other unmanned aerial vehicles already flying daily – mostly in military service.

Pilotless aircraft aren't a distant sci-fi concept nor the wishful dreams of bean-counters at big airlines where the nattily-uniformed flight crew is a big cost just waiting to be cut.

And, as many pilots inside cockpits lament, most of the time they do little, if any, "hand flying." Courses, heights, waypoints, rates of descent are all programmed into flight management computers which then "fly" modern aircraft far more smoothly and achieving far better fuel consumption, than even the most suave of airline captains.

Andreas Lubitz, the co-pilot suspected of deliberately crashing the Germanwings Airbus A320, didn't seize a control stick and frantically dive the jet into oblivion. Rather, he simply dialled in 100 feet, in place of the assigned 36,000 feet cruising altitude, and the Airbus dipped the nose of the 70-tonne, twin-engined jet and flew it smoothly at a steady 800 kilometres per hour for eight more minutes until it slammed into a mountain. Mr. Lubitz didn't need to touch anything further, except the lock override switch by his left hand that kept the captain out of the cockpit and doomed everyone on board.

Aviation experts envision an end to the era of pilots – at least pilots in cockpits – just as inevitably as elevator operators became redundant, expensive and far less precise in the operation than computerized systems.

As just as some high-end department stores kept on uniformed elevator operators who did nothing except offer reassurance by their presence to nervous shoppers, the transition to remotely-guided or autonomous aircraft may include a period of pilots present but not required on board airliners.

In many ways, autonomous operation of aircraft is far less of a technological challenge than autonomous or driverless cars – which major manufacturers expect will be sharing the roads with more dangerous human drivers within a few years. For instance, across North America, there are only about 5,000 commercial and military aircraft flying in controlled airspace at one time. That's far fewer than the number of cars in a small city and they don't need to dodge pedestrians, other drivers unexpectedly doing stupid things or a host of other variables that make driving far more complex. And aircraft fly pre-determined routes, at heights and speeds that can be far more easily adjusted to avoid collisions between a few hundred well-defined destinations.

David Learmount, an operations and safety expert at Flightglobal and a veteran aviation expert who has flown dozens of aircraft types, predicts pilots won't be in cockpits in 15 years but in an airline's operations room, rather like the U.S. Air Force pilots flying Global Hawks from Beale.

"Imagine an airline crew room in 2030," he says. "The airline has, say, 300 airplanes, but only about 50 pilots. About ten of these will be on duty in the crew room at any one time [with secure links] to any of the fleet that's airborne. On the rare occasion that something anomalous occurs on an airplane, … they can intervene as effectively as they could have done in the aircraft."

Cargo flying and transoceanic routes, with no nervous passengers to persuade will likely be the first to make the change. United Parcel Service, the global package and freight giant operates 238 large cargo jet aircraft . In a decade, it expects to be flying pilotless freighter aircraft across the Pacific Ocean.

Transition Period

People feel safer with a pilot in the aircraft. They shouldn't. 911, Malaysia 370, Germanwings Airbus A320, EgyptAir 767, and deliberate crashes in Namibia and Indonesia are proof enough.

15 years is too long to wait. There should have been a transition to pilotless aircraft long ago. It's a tragedy that someone on the ground or the aircraft itself could not override these deliberate crashes.

Such fatal tragedies are very rare, but why have them at all? Self-driving cars and trucks will be safer than human-driven ones. So will automated ships and planes. If anything, ships and planes should be easier to implement than cars.

So why the delay?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Seth's Blog : Self talk

Self talk

There's no more important criticism than self criticism.

There's no amount of external validation that can undo the constant drone of internal criticism.

And negative self talk is hungry for external corroboration. One little voice in the ether that agrees with your internal critic is enough to put you in a tailspin.

The remedy for negative self talk, then, is not the search for unanimous praise from the outside world. It's a hopeless journey, and one that destroys the work, because you will water it down in fear of that outside critic that amplifies your internal one.

The remedy is accurate and positive self talk. Endless amounts of it.

Not delusional affirmations or silly metaphysical pronouncements about the universe. No, merely the reassertion of obvious truths, a mantra that drives away the nonsense the lizard brain is selling as truth.

You cannot reason with negative self talk or somehow persuade it that the world disagrees. All you can do is surround it with positive self talk, drown it out and overwhelm it with concrete building blocks of great work, the combination of expectation, obligation and possibility.

When in doubt, tell yourself the truth.

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sâmbătă, 28 martie 2015

Mish's Global Economic Trend Analysis

Can the Eurozone Survive? Not in Its Current Form Says PIMCO; Mish Response

Posted: 28 Mar 2015 06:20 PM PDT

Echoing statements I have made many times, PIMCO says the single currency area must become a "United States of Europe" in order to secure its future.

Please consider Eurozone can't survive in current form, says PIMCO.

The eurozone is "untenable" in its current form and cannot survive unless countries are prepared to cede sovereignty and become a "United States of Europe", the manager of the world's biggest bond fund has warned.

The Pacific Investment Management Company (PIMCO) said that while the bloc was likely to stay together in the medium term, with Greece remaining in the eurozone, the single currency could not survive if countries did not move closer together.

Persistently weak growth in the eurozone had led to voter unrest and the rise of populist parties such as Podemos in Spain, Syriza in Greece, and Front National in France, said PIMCO managing directors Andrew Bosomworth and Mike Amey.

"The lesson from history is that the status quo we have now is not a tenable structure," said Mr Bosomworth. "There's no historical precedent that this sort of structure, which is centralised monetary policy, decentralised fiscal policy, can last over multiple decades."

PIMCO said the rise of populist parties demonstrated how uneasy some people had become about the euro.

"[Persistently low growth] manifests itself in a lack of support in the common currency, so then it leads to the rise to power of political parties that want to end it," said Mr Bosomworth.

PIMCO said the rise of populist parties demonstrated how uneasy some people had become about the euro.

"[Persistently low growth] manifests itself in a lack of support in the common currency, so then it leads to the rise to power of political parties that want to end it," said Mr Bosomworth.

Nothing New

I certainly agree the eurozone cannot survive unless it becomes the "United States of Europe".

There is absolutely nothing new in this announcement other than who said it. I have been talking about this for years.

Can the Eurozone Survive?

It won't because it cannot. Germany's constitution prohibits a fiscal union and transfer mechanism. If that changes, I will change my tune.

And that's also something I have also said.

In addition to Germany's constitution, I believe Finland and other states would object. Heck, look at all the animosity over Greece. Look at work rules and retirement ages in France.

For a "United States of Europe" to work, countless issues would need to be worked out. And to top it off, eurozone rules are such that every nation would have to ratify the changes. What's the likelihood of that?

Bottom Line

If the Eurozone cannot survive without becoming the "United States of Europe", it cannot survive at all.

For detailed discussion on this topic, please see From ZIRP to NIRP: Virtues of Germany vs. the Vices of Greece; What About "Speece" and Gold?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Wally Becomes Chief Economist for Dilbert, Predicts "Bubble in Monetary Policy"

Posted: 28 Mar 2015 10:29 AM PDT

On the lighter side, in the March 28, 2015 Dilbert, Wally becomes the new chief economist.

Wally: "The exchange rate on derivatives will trigger a bubble in monetary policy and deflate the Yen."

I like the phrase "bubble in monetary policy". It aptly expresses precisely what has been happening globally.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Seth's Blog : 'Pick yourself' and taking responsibility

'Pick yourself' and taking responsibility

Perhaps you've decided that the idea of Pick Yourself is sort of a new-age mantra, a promise that everyone is entitled to what they want, right now.

What a shortcut it seems to be. A false promise, holding out that illusion that we can get what we want if we just raise our hand. Pick yourself, you win...

It's precisely the opposite.

If you want to be responsible for making music, make music. If you want to be responsible for writing, speaking, making change happen, go do that. Waiting to get picked is a form of hiding, not realism.

No, it's not always possible for everyone to succeed by being the most popular, the most clicked on, the most liked. In fact, it will never happen. No one is promising that, I hope. What pick yourself means is that it's never been easier to decide to be responsible for your own work, for your own agenda, for the change you make in the world. To have a chance to matter. Not to be finished right now, but starting now.

Pick yourself means we should stop waiting and whining and stalling.

The outcome is still in doubt, but it's clear that waiting just doesn't pay.

[Podcast discussions on this topic: Unmistakable Creative, Sounds Like a Movement, The Lede, Read to Lead]

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vineri, 27 martie 2015

Mish's Global Economic Trend Analysis

Patriot Act Vote Coming Up: Google joins Apple, Others Requesting Spying Controls
Earnings "Beat the Street" Manipulation Underway as Profit Warnings Mount
Misunderstanding "Peak Gold"; Gold About to Run Out?
SNB Warns of "Temporary Deflation", Promises Further "Unconventional Measures" Including Forex Interventions to Achieve "Stability"

Patriot Act Vote Coming Up: Google joins Apple, Others Requesting Spying Controls

Posted: 27 Mar 2015 06:40 PM PDT

The Patriot act expires in June, and anyone in their right mind would wish the entire concept to go away entirely. NSA Spying has a 100% perfect track record of failure.

Sadly, the answer to the question Would NSA Data Surveillance End With Patriot Act? is a resounding "No".

The National Security Agency would lose its legal justification for collecting data on Americans' phone and email activity if Congress does not reauthorize the Patriot Act by June 1, but privacy advocates are skeptical about whether that would mean the end of the controversial surveillance program.

President Barack Obama has called on Congress to pass a bill that would end the bulk surveillance program while keeping certain spying powers intact for national security reasons. The clock is ticking, however, as the NSA loses its legal authority for domestic surveillance provided by Section 215 of the Patriot Act in June. If Congress does not renew that provision then the Obama administration will not push to continue the program, although its absence would damage America's national security, says Ned Price, a spokesman for the National Security Council.

"If Section 215 sunsets, we will not continue the bulk telephony metadata program," Price tells U.S. News. "Allowing Section 215 to sunset would result in the loss, going forward, of a critical national security tool that is used in a variety of additional contexts that do not involve the collection of bulk data."

The NSA, however, could invoke other legal powers to continue the data collection program without Section 215 of the Patriot Act, says Harley Geiger, senior counsel for the Center for Democracy and Technology advocacy group. The government has also conducted bulk collection of email metadata in the past using Section 214 of the Patriot Act, for instance, which is also called the Foreign Intelligence Surveillance Act "pen trap statute," Geiger says.

"The FISA pen trap statute does not have a sunset and would not be affected by a sunset of Section 215," he says. "For these and other reasons, we believe that legislation to end bulk collection would be more effective than merely letting Section 215 sunset. However, we believe Congress should sunset Section 215 if effective reform is not possible."

Passing surveillance reform may be difficult in a Congress controlled by Republicans, considering it failed last year while Democrats controlled the Senate. Senate Majority Leader Mitch McConnell of Kentucky is among the Republicans who say the NSA powers are necessary to ensure national security.

"I will vote for the Freedom Act as long as it doesn't include reauthorization of the Patriot Act," Paul told U.S. News recently, adding that he will not vote to reauthorize Section 215.

Paul told U.S. News he will also partner with Sen. Ron Wyden, D-Ore., on a bill to amend the Patriot Act when it comes up for reauthorization.

A bill introduced on Tuesday by Reps. Thomas Massie, R-Ky., and Mark Pocan, D-Wis., would abolish legal powers for surveillance programs, including the entire Patriot Act and the FISA Amendment Act of 2008.

Google joins Apple, Others Requesting Spying Controls

CNET reports Google joins Apple, others in calling for spying controls, as Patriot Act vote nears.

With an important surveillance-related section of the USA Patriot Act up for reauthorization this year, Google has teamed with other tech firms in sending a letter to lawmakers and others that spells out needed changes to US spy policies.

On Wednesday, Google revealed in a blog post that it has joined the Reform Government Surveillance coalition, civil rights groups and trade associations in sending the letter, which promotes transparency, accountability and an end to the bulk collection of data.

The letter (PDF) -- addressed to government figures including US President Barack Obama, Director of National Intelligence James Clapper, National Security Agency Director Michael Rogers and various House members -- underscores the need for reform that will both protect national security and preserve the right to privacy. Google also posted a page online where people can add their name in support of the reforms.

The catalyst for the letter is the USA Patriot Act -- specifically Section 215, which the NSA points to as the legal basis for its bulk collection of data. Section 215 is set to expire June 1, and lawmakers must vote before then on whether to reauthorize the section or allow it to "sunset."

The letter outlines what it says are "essential" elements to surveillance reform, mentioning Section 215, as well as Section 214 -- another part of the Patriot Act that the NSA could invoke to justify its bulk collection and one that's not set to expire this year.

The companies say it has been nearly two years since the first news stories revealed the scope of the NSA's spying, and that "now is the time to take on meaningful legislative reforms" that maintain national security but also protect privacy, transparency and accountability.

The Reform Government Surveillance coalition now counts Apple, AOL, Dropbox, Evernote, Facebook, LinkedIn, Microsoft, Twitter, Yahoo and Google among its members.

The group's principles are based on the idea of placing "sensible" limitations on government surveillance powers and introducing strong checks and balances when governments are granted the power to spy -- to prevent abuse and keep the concept of privacy intact. In addition, the group promotes transparency concerning government demands for data imposed on technology companies, as well as respecting the free flow of information across borders.

Congress Must Reform Our Surveillance Laws

On the Google Public Policy Blog, David Drummond, Chief Legal Officer, Google, states Congress Must Reform Our Surveillance Laws.

We have a responsibility to protect the privacy and security of our users' data. At the same time, we want to do our part to help governments keep people safe. We have little doubt that Congress can protect both national security and privacy while taking a significant, concrete step toward restoring trust in the Internet.

Google has been working hard for the last two years to reform government surveillance laws, and we will continue to push for broader surveillance reforms in the months ahead.

We invite you to join us in asking Congress to enact surveillance reform by adding your name at google.com/takeaction.

Bill of Rights

As far as I am concerned, any law that does not pass muster with privacy restrictions in the Bill of Rights, should be done away with entirely.

Here's a refresher course on the Fourth Amendment to the United States Constitution, part of the Bill of Rights.

The right of the people to be secure in their persons, houses, papers, and effects,[a] against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.

The Fourth Amendment was adopted in response to the abuse of the writ of assistance, a type of general search warrant issued by the British government and a major source of tension in pre-Revolutionary America.

Dear Congress

I find it galling that Republican hypocrites voted for the Patriot Act and any of its extensions. I believe the Patriot act should not be amended but rather abolished in entirety.

Thus, I am torn over half-measures that allegedly will do what is needed. Google says "We have little doubt that Congress can protect both national security and privacy while taking a significant, concrete step toward restoring trust in the Internet.

I have high doubts. Once rights are taken away, history suggests it is damn hard to win them back. The only question at hand is whether or not partial restoration of rights merits your consideration or not.

On the theory that half a loaf is better than none, but also with plenty of reservations, please consider Google's Dear Congress Petition.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Earnings "Beat the Street" Manipulation Underway as Profit Warnings Mount

Posted: 27 Mar 2015 01:17 PM PDT

Of S&P 500 companies providing first-quarter outlooks, MarketWatch reports 84% have been negative as Profit Warnings Pile Up.

Ahead of the start of earnings reporting season, which unofficially kicks off when Alcoa Inc., reports results on April 8, about 84% of the companies that have provided first-quarter outlooks gave negative outlooks. That's above the 81% that warned Q1 2014, and the five-year average of 68%.

I believe that yellow highlight I added should say Q3. More importantly, it would have been nice for MarketWatch to actually link to FactSet because it contains some interesting charts and analysis.

Earnings Insight

Let's dive into the FactSet Earnings Insight Report for first quarter of 2015.

Key Metrics

Earnings Growth: For Q115, year-over-year earnings for the S&P 500 are projected to decline by 4.6%. If the index reports a year-over-year decline for the quarter, it will be the first time since Q 3 2012 (-1.0%).
Earnings Revisions: On December 31, the estimated earnings growth rate for Q1 2015 was 4.2%. All ten sectors have lower growth rates today (compared to December 31) due to downward revisions to earnings estimates, led by the Energy sector.
Earnings Guidance: For Q1 2015, 85 companies have issued negative EPS guidance and 16 companies have issued positive EPS guidance.
Valuation: The current 12-month forward P/E ratio is 16.7. This P/E ratio is above the 5-year (13.7) average and the 10-year (14.1) average for the index.
Earnings Scorecard: Of the 16 companies that have reported earnings to date for Q1 2015, 14 have reported earnings above the mean estimate and 10 have reported sales above the mean estimate.

Earnings vs. Price

Q1 2015 Earnings Season: By the Numbers Overview

Analysts and corporations continue to lower expectations for earnings for the S&P 500 for the first quarter. On a per-share basis, estimated earnings for the first quarter have fallen by 8.2% since December 31. This is the largest decline in the bottom-up EPS estimate for a quarter since Q1 2009.

Companies have also lowered the bar for earnings fo r Q1, as 85 companies in the index have issued negative EPS guidance, while just 16 companies have issued positive EPS guidance. The percentage of companies issuing negative EPS guidance is 84% (85 out of 101), which is well above the 5-year average of 68%. As a result of the downward revisions to earnings estimates, the estimated year-over-year earnings decline for Q1 2015 is -4.6% today, down from an expectation of growth of 4.2% at the start of the quarter (December 31).

There is much more in the report. Inquiring minds may want to take a look.

Earnings Manipulation Underway

In spite of these downgrades (rather, because of these downgrades), when actual earnings are announced, expect a huge majority of companies to "beat the street".

Every year, whether earnings are going up or down, companies guide analysts to numbers low enough they can beat.

Don't Be Fooled

Please consider this CNBC report from April of 2014: Companies are Beating Earnings Estimates But Don't Be Fooled.

Of the 85 S&P companies that have already reported their first-quarter earnings, 67 percent have beaten analyst estimates on the earnings side, and 51 percent have beaten on the revenue side, according to FactSet. That sounds pretty good—until one considers that over the past four years, 73 percent of companies have tended to beat earnings estimates, and 58 percent have tended to beat revenue estimates.

As with MarketWatch, CNBC did not have the decency to link to FactSet either.

Failure to Beat the Street

The last time companies failed to "beat the street" was third quarter of 1998. At the earnings trough in third quarter of 2008, 58% of companies in the S&P 500 still managed to "beat the street".

Don't Worry Companies Will Still "Beat the Street"

In spite of those downgrades, history suggests corporations will still "Beat the Street".

even in 2008 and 2009 the majority of firms beat estimates. Here is the way the process works:

Corporations give analysts "tips" regarding profit expectations.
Those profit expectations are purposely low.
Wall Street analysts lower estimates, if necessary, as the quarter progresses such that corporations can "beat the street".
If corporations are going to miss and need an extra penny, they change tax assumption or make other "one time" adjustments as necessary.
Corporations beat the street by a penny with "pro-forma" (after adjustment) reporting.

Mind the Gap

By the way, that's one hell of a gap between earnings guidance and stock price. The 10-year smoothed PE at the end of this earnings season is set to soar. The 10-year PE is already one of the three most expensive in history.

Doug Short at Advisor Perspective takes a look at the 10-Year PE in his March 2, 2015 post Is the Stock Market Cheap?

Stock are only cheap compared to 1929, the dot-com bubble, and the housing bubble. Given the plunge in earnings estimates, this market will soon pass the housing bubble in amplitude.

The 1929 peak may even be in sight. And in many ways, this bubble is worse than the dot-com bubble, as during the tech wreck one could find many companies with good valuations. It was predominately technology with PE extremes.

Doug Short notes ...

The historic P/E10 average is 16.6. After dropping to 13.3 in March 2009, the ratio rebounded to an interim high of 23.5 in February of 2011 and then hovered in the 20-to-21 range. The latest ratio is at a new interim high -- the highest since December 2007.

A cautionary observation is that when the P/E10 has fallen from the top to the second quintile, it has eventually declined to the lowest quintile and bottomed in single digits. Based on the latest 10-year earnings average, to reach a P/E10 in the high single digits would require an S&P 500 price decline below 550. Of course, a happier alternative would be for corporate earnings to continue their strong and prolonged surge.

Equities and junk bonds globally are now in massive bubbles. Nonetheless, expect analysts to focus on the number of companies that "beat the street" because that is one of the key ways they use to convince you "stocks are cheap".

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Misunderstanding "Peak Gold"; Gold About to Run Out?

Posted: 27 Mar 2015 12:12 PM PDT

Is gold about to "run out"? The correct answer to that question is the likelihood of that happening is precisely 0%.

However, that is not the conclusion one would come to from the Zerohedge headline Peak Gold? Goldman Calculates There Is Only 20 Years Of Gold Supply Left.

Zerohedge supplied a couple of charts.

Peak Gold

Diamonds Aren't Forever

Gold About to Run Out?

Zerohedge comments ...

If the "known reserves" of gold plunge in the coming decade, no matter how many gold futures and GLD short sales are conducted by the BIS, the price will have to go up, and it will go up high enough to where a new surge of gold miners will come online and find thousands of new tons of gold reserves around the globe.

Unless they don't, and Goldman is correct that "peak gold" may have arrived. This will be even more true if over the coming years the long overdue fiat economic panic finally washes over the globe, and a revulsion toward central bank policies forces a scramble into gold whose value (if not price since fiat currencies will be redundant) soars.

The answer is unclear, but what is certain is that like the price of oil over the past decade and until last fall when price discovery finally became somewhat credible, what happens in the physical realm has absolutely zero marginal impact on the price of commodity which has about 100 ounces in deliverable paper contracts for every ounce in underlying. It will be only after the gold price distortions via the derivative market are eliminated that such trivial price-formation forces as supply and demand are once again relevant.

Gold Not About to Run Out

Gold is not about to run out for the simple reason that nearly every ounce ever mined is still in existence. In that regard, mining supply, central bank buying, jewelry demand etc. are essentially meaningless.

Misconceptions About Gold

I discussed jewelry demand and other topics in 2007, in Misconceptions about Gold. The article says written by Trotsky, edited by Mish. "Trotsky" was a spoof name at the time for who is now better known as Pater Tenebrarum at the Acting Man blog.

Gold Supply and Demand

If gold's price were determined by fabrication demand alone (jewelry and industrial uses), it could not possibly trade at a price of $650 oz.

Many gold analysts, from the mainstream to fringe groups such as the Gold Anti-Trust Action Committee (GATA) claim that they can predict what the gold price will do by adding up annual fabrication and investment demand (as well as dehedging demand by miners) and contrasting the resulting total with annual supply (mine supply, central bank selling, disinvestment and scrap). In short, they analyze the gold market in the same manner as they would analyze the copper market.

It should be immediately obvious that this can't be correct. After all, nearly the entire gold ever mined (approximately 150,000-160,000 tons) is still here. In short, the total potential supply of gold is some 97-98% greater than the gold produced every year (approximately 2,600 tons).

On that basis it makes no sense to apply traditional commodity supply/demand analysis based on annualized trends in the gold market.

Simply put, there is a big difference between commodities that are effectively used up (aside from scrap residual returning to the market every year) and a commodity the indestructibility and durability of which inter alia made gold the 'money commodity' in the first place.

Jewelry Demand vs. Monetary Demand

One can further illustrate gold's unique nature as money with a study of gold prices vs. jewelry demand. If record fabrication demand for gold (jewelry) must be good for the price of gold, then a historic high in jewelry demand should in theory coincide with a high gold price.

However, record high jewelry demand in 1999 - 2000 in actual fact coincided with a 20 year bear market low in the gold price - the exact opposite of what traditional commodity supply/demand analysis would suggest.

We can therefore conclude that there must be a source of gold demand that is of far greater importance than the jewelry and industrial demand components, and that demand constitutes the true driver of the price of gold in terms of fiat money.

Indeed, there is. This demand component is called 'monetary demand'. Monetary demand and the supply of gold is actually best described as the 'degree of reluctance of the current owners of gold to part with their gold at current prices' since, as mentioned above, some 160,000 tons are owned by somebody already.

De facto gold acts in the markets as if it were another currency rather than a commodity. It often keys off other currency cross rates, such as dollar/euro , and has a strong tendency to ignore all the typical supply/demand analysis thrown at it by the mainstream (including the World Gold Council which should know better).

A rising gold price usually begets falling jewelry demand, which is exactly what the theory of price elasticity would suggest. But at the same time, rising prices actually tend to stoke investment demand, just as a developing uptrend in the stock market tends to invite more demand rather than less.

What's the Real Long-Term Driver for Gold?

Most analysts are totally clueless about gold and gold markets. They cite jewelry, mining production, central bank sales, and all sorts of other irrelevant factors in their analysis.

In an interview on Gold Switzerland Robert Blumen discusses "What's really key for the price formation of gold?"

Gold is an asset. People buy it in order to hold it. The price of gold is set as people balance, at the margin, the amount of additional units of gold they want to hold against additional units of other assets or cash they want to hold, or consumption.

If you think of the possible gold buyer as the guy who is saying, "Do I want to hold one more ounce of gold or this $1,800 that I have?" The answer to his question is going to be different for each person and for each additional ounce. You might say "yes, I want one more ounce of gold instead of $1,800". Now, you have an ounce of gold and if I ask you the question again you might say, "No, now that I have bought that additional ounce, I've got enough gold".

On the supply side, are the people who own gold. From their point of view they have to answer the question, "Do I want to keep holding this ounce of gold or do I want to sell it on the market and have $1,800?" That $1,800 might stay in cash or maybe they have another use in mind for it. The supply side is everyone who has any gold and the buy-side of the market is anyone who has any money that they might want to put into gold.

The people who already own gold, they could be active on either side of the market as a buyer or a seller. I want to emphasize that everyone who owns any gold at all is part of the supply-side of the market, not all at the current price, but at some price.

Many of the people who have bought gold in the last few years are not remotely interested in selling at the current price or even double the current price, but there is always a price or some combination of price and circumstances where somebody would put some of their gold on sale — maybe not all of it but some of it. And people on the money side of the market are asking the same question in relation to gold. The market balances all of those choices out and you have a price that brings out the quantities on both sides of the market into balance.

Maybe that's not totally true, maybe some gold is held by people who wouldn't sell it for any reason. But I think that the concept of the gold bug who plans to take it all to the grave is over-stated. I asked a person the gold business whether gold retail trade is all selling and no buying. He told me, "No of course not, there are always buyers and sellers". After all, what is the point of having a store of value if you never use the value?

And it is important to understand the cost of owning gold is not necessarily the amount of money you could get by selling it. Prices are only a way of quantifying true costs. The cost of owning an ounce of gold is whatever other sort of economic opportunity that you are sacrificing by owning the gold instead. People who own gold are every day looking at "what other economic opportunities am I giving up by holding this ounce of gold?" and then "Do I want to shift the next ounce of gold somewhere else that will give me a better return or a better consumption experience?". If you could swap an ounce of gold for one unit of the American Dow Stock Average that was at the time yielding 12% then the cost of owning an ounce of gold is not owning a unit of the DJIA. The cost of owning gold is the opportunity cost, of which holding cash instead is only one possible choice.

How Much Gold Is There?

Here are a few charts courtesy of Sharelynx Gold from my November 2014 article Swiss Gold Referendum in Perspective in which I presented the case the referendum was meaningless except perhaps from a psychology standpoint.

Annual Gold Production

Cumulative Gold Production Since 1835

Central Bank Holdings vs Cumulative Production

Of the 2013 total (a bit higher now), central banks hold about 31,877 tons.

SNB Purchases Irrelevant

One must exclude central bank holdings from the amount of gold available for central banks to buy. And as stated earlier, one can subtract various other items like rare coins, but the overall numbers show that it's safe to conclude "buying 1,800 tonnes of gold over 5 years" is essentially irrelevant from a "gold available" for purchase standpoint.

Irrelevance

Discounting short-term psychology factors, mining is irrelevant, central bank purchases and sales are irrelevant, jewelry demand is irrelevant, and coin sales are irrelevant as factors in the price of gold.

Finally (and much unlike oil) because nearly every ounce of gold ever mined is still in existence, the entire concept of "peak gold" cannot happen until mining grinds to a total halt.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

SNB Warns of "Temporary Deflation", Promises Further "Unconventional Measures" Including Forex Interventions to Achieve "Stability"

Posted: 27 Mar 2015 12:30 AM PDT

Unconventional Yields

Swiss Bonds are negative out to 10 years. They briefly went negative out to 15 years in the wake of the sudden removal of the Swiss National Bank peg to the euro back on January 13 as shown in the following chart.

Swiss 15-Year Bond Yield

Yield on 20-year Swiss bonds plunged to 0.10% on January 13 as well. Today, you can get 0.19% for 15 years or 0.31% for 20 years. That's how crazy things are.

SNB Warns of "Temporary Deflation"

Please consider SNB Warns of 'Difficult Times' as Currency Move Hits Home

Switzerland is facing "difficult times" and a short period of deflation following January's abrupt unwinding of a currency peg, one of the Swiss National Bank's most senior policy makers said on Thursday night.

The comments from Fritz Zurbrugg, one of three permanent members of the SNB's governing board, show the impact of the January 15 currency move on an economy often regarded as a safe harbour during the eurozone crisis.

The Swiss franc has shot up in value since the removal of the peg that capped it at SFr1.20 per euro, making Swiss exports and Swiss holidays more expensive. A euro is now worth SFr1.05.

Mr Zurbrugg said that the fall in prices that Switzerland faces is "temporary" and would not threaten price stability in the medium term. "A damaging deflationary spiral is not expected."

Swiss inflation is already in negative territory, with prices falling 0.8 per cent in February — worse than the 0.3 per cent fall in prices across the eurozone in the month.

The SNB complemented January's currency move by reducing deposit interest to -0.75 per cent in an effort to prevent a wave of cash flowing into Switzerland in anticipation of the Swiss franc's rise in value.

"The introduction of negative interest is already having the desired effect," said Mr Zurbrugg, pointing to falling interest rates across the board.

"It is important that the negative interest rate be allowed to take effect and help to bring about a weakening of the Swiss franc," he said. "Efforts to circumvent negative interest rates by obtaining exemptions or shifting to cash are not in the interests of Switzerland as a whole in the current climate."

Speaking at the same event, Dewet Moser, an alternate member of the SNB's governing council, said the central bank had more tools it could use to make sure it achieved its policy objectives.

"If required, the SNB will continue to deploy unconventional methods for monetary policy implementation," he said. "Equally, it will continue to take account of the exchange rate situation and, if necessary, will intervene in the foreign exchange market."

Unconventional Measures

It is rather amusing (a word I am using a lot lately) to watch competitive efforts of central banks to destroy their currencies to ward off what should be a welcome event - stable to falling prices.

Instead of welcoming stable prices, the Swiss National Banks promises to deploy more "unconventional measures" including another attempt at currency intervention, to achieve what they already have.

Let's take a look at the "stability" of the last peg and what happened the day it was removed.

Swiss Francs vs. Euro

If that's not the epitome of stability, what is?

If by some chance that does not look like stability, don't worry. Alternate member Dewet Moser says the central bank has "more tools" to achieve desired stability.

Heaven forbid should any currency ever become a "safe harbour".

Clearly, "safe harbour" is nothing but a wart on Cinderella's nose. No central banker could ever allow that to happen.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com